Posted
by
Unknown Lamer
on Wednesday February 15, 2012 @12:22PM
from the but-mom-money-does-grow-on-gpus dept.

First time accepted submitter Sabbetus writes "On Monday the CEO of prominent Bitcoin exchange Tradehill announced that they are shutting down. Ars Technica ran a story on this stating that 'After Monday's news, the currency's value fell from $5.50 to $4.40, a decline of 20 percent.' Tradehill is returning all funds and meanwhile their competitors are fighting over who gets Tradehill's customers."

... meanwhile their competitors are fighting over who gets Tradehill's customers.

Not sure where that came from, didn't find it in the Ars article. At the end they mention Mt. Gox being the only other exchange... so there's one competitor. They didn't mention anything about fighting over customers.

Furthermore the third sentence in the Ars article was suspiciously absent from the summary:

He has pledged to open a new site once these issues have been resolved.

As well as the explanation of why all this happened (lack of proper money transmission licensing). I've asked this many times before but how do you track illegal purchases on BitCoin [slashdot.org] when, by definition, it claims to be an anonymous payment solution?

Quite simply put, no BitCoin exchange -- neither Tradehill nor Mt. Gox -- is going to be able to comply with the Bank Secrecy Act [wikipedia.org].

There are any number of valuable things that your landlord would be unlikely to accept as payment. Carbon nanotubes, for instance. So, Bitcoin is not (yet? ever?) a viable currency, but that doesn't mean it doesn't have value.

By your definition, idiots can successfully use bitcoin as a currency, but only because they don't realize how "silly" it is.When you think about it, that's a *really* odd thing to state.If you mean that bitcoins have no intrinsic value, then you'd be right. But that's true of currencies in general these days. No one uses gold coins as currency any more.If you actually have a specific criticism if bitcoin other than "silly", I'd be interested to hear it.

The Act only applies to the US though. Many places you can host an exchange. Never heard of tradehill though, so can't tell where they were based.

One of the nice things about bitcoin is that there are no real borders for it. You can trade on any exchange in the world, and use the currencty anywhere without restrictions (so a bit like cash, but without limits on how much you can take out the country, or currency conversion fees, etc...).

You seem to forgot that the US government controls the DNS system and can confiscate domain names at will.

Also we're not talking about a Bitcoins to seashells exchange here; we're talking about a Bitcoins to USD exchange. Any such exchange must perform transactions with other banks that operate with USD. Guess where a majority of those USD-handling banks are located?

All they 'control' are the silly generic domains that are too overpopulated to be useful anymore anyway. The rest of the world could rather quickly tell the US to go fuck themselves are far as DNS is concerned.

While many of the root servers are operated outside the US, it is ARIN that assigns them the space in the root server namespace, and delegates the root server cache. And ARIN is as American as apfelstrudel.Nothing except it (a) being incredibly stupid to do so, and (b) the politicians being unaware prevents the US from retracting root servers they don't like from the rest of the world.

There were a couple of attempts at creating a parallel DNS world not touchable (remember alternic, anyone?), but they neve

TOR is an http packet router The Onion Router) [wikipedia.org] and therefore is unrelated to DNS. You could argue that DNS is irrelevant bu then you would be forced to remember 50.17.218.130 instead of example.co.bs and imagine how fun that would be.

Also an only IP solution would still be scrutinized by the IANA (and regional entities) since IP isn't decentralized.

One more thing: if DNS would go down hosting costs for your blog would go up (as in sky high) because you would need a dedicated IP for it instead of a shared on

Quite simply put, no BitCoin exchange -- neither Tradehill nor Mt. Gox -- is going to be able to comply with the Bank Secrecy Act.

I disagree. As long as an exchange keeps identity records for all of its business and for all of the address endpoints it creates, it'd probably be able to comply with US Treasury Department regulations. Bitcoin isn't anonymous. Things only start to get murky once you are moving bitcoins around off an exchange, but that's not the exchange's problem.

I mine one block of 50 BitCoins. I use that that block to get 50 $5 Sears gift certificates (redeemable in-store) through BTCBuy. I redeem them (CA, ME, MA, and MO all require stores to cash out gift certificates with $5 or less on them) in-store for cash.

More realistically (and less likely to arouse suspicion from a salesdrone), I would just take a $250 gift cert and actually buy something I needed at Sears; but the protest-of-last-resort from the naysayers always runs along

Quite simply put, no BitCoin exchange -- neither Tradehill nor Mt. Gox -- is going to be able to comply with the Bank Secrecy Act [wikipedia.org].

Totally not true. They have to record cash transactions for negotiable instruments. They have to report cash transactions over $10,000. Most of them did not deal in cash at all, but in credit or debit cards and paypal, all of which is easily recorded. The act makes no mention of tracking the negotiable instruments (bitcoin) after they are sold.

Quite simply put, no BitCoin exchange -- neither Tradehill nor Mt. Gox -- is going to be able to comply with the Bank Secrecy Act.

First, Bitcoin is pseudonymous, not anonymous. Second, the important part: while it's very difficult to positively identify who sent you some Bitcoins, the exchanges know exactly who receives them, trades them back and forth to fiat currencies, and then sends them back out. They have names and bank account numbers, or they're using fiat payment services that have bank account numbers. Know Your Customer is not a problem for most exchanges.

You can trace mined coins to specific IP addresses if you are careful with how you listen to the packets and try to find out which computer gave you the packet first. If you had several computers tracking this information, it would be possible to identify down to a small number of users who actually mined some Bitcoins, and from that if any Bitcoins were co-mingled with those mined coins to be able to further identify what other addresses might be used by that person who also is mining coins.

Still, attempting to do that is a real technical challenge and you would need the resources of something like the U.S. federal government to pull that off, plus a whole bunch of data mining and active participation in the Bitcoin network... and it still gives wiggle room for plausible deniability on the surface. If there was a particular set of transactions that such data mining was looking for, you can still be tracked.

On the other hand, if you were very paranoid about such things you could set up manual connections for routing Bitcoin data to only trusted nodes (by your own definition... not some random list in other words), and hopefully even they are being just as paranoid about random connections "to the outside world".

IF you control all nodes, AND you KNOW you control all the nodes, then you can track the transaction to the IP ADDRESS of the MINER or TRANSACTION INITIATOR.You cannot track the transaction to an individual person. An IP address is not a person. A Bitcoin address is not a person.

Furthermore, it's laughable to think that anyone can control all of the nodes to make this possible.And if that scenario ever did occur, you could just avoid routing directly to those nodes (as you mentioned).

Except to use cash, you have to go out in public. You know, where there are often cameras. And most stores don't take kindly to people walking in wearing ski masks and gloves to conceal their faces and fingerprints.

AHA! Proof that you actually read the article AND Jered's original post to the bitcointalk forum announcing the change. Tradehill is closing so that a new platform can be built from the developer team.

You actually read the article and its source material. You are an embarrassment to the Slashdot community.:-)

As I understand it all you needed was a swapping service, you put a coin in and get a different coin back. It's a little more complicated to avoid correlation and timing attacks and such, but that's the basic idea.

I could have written a much longer description but I think that the Ars Technica article covers it well. The claim that Mt. Gox is the only other exchange is silly though. There are many exchanges and Tradehill was only slightly bigger than Intersango and Cryptoxchange. Both of these exchanges have started to push their marketing especially at Bitcointalk forums, after this incident: https://bitcointalk.org/index.php?topic=63941.0 [bitcointalk.org] & https://bitcointalk.org/index.php?topic=63877.0 [bitcointalk.org]

And by "print money" you mean "waste electricity while participating in a pyramid scheme that was destined to fail."
Right?
Nope. Because Bitcoin is not a scheme whereby people use newcomers money to pay people who have been in the scheme longer. In fact, Bitcoin does not ask people for money at all.

Just cut the word "pyramid" from his comment. It's an abused term any more. Every system where a small group makes over sized profits and a larger group lose money is labeled a pyramid scheme, regardless of whether the people that lost money made terrible decisions along the way or not. In this case the new people to Bitcoins lost money by spending more on electricity and video cards than they earned while the people that had been in for a while could have sold out at the high.

Every system where a small group makes over sized profits and a larger group lose money is labeled a pyramid scheme, regardless of whether the people that lost money made terrible decisions along the way or not.
Then every successful corporation is a pyramid scheme.

That's my bet. One (or maybe more) of the Slashdot staff was in to bitcoins. They mined them, bought them, whatever. So they had an interest in getting people in to them so the value would go up and they could make money. Now they are out of it so they don't give a shit, no reason to pimp it anymore.

Plus it was a fad, and its time has come and gone. While it isn't dead, the days of "big money" are gone. It lost a shit ton of value, the miners aren't making much, etc, etc. The virtual gold rush is over, so i

Tradehill was never a major Bitcoin exchange.MtGox is the only one anyone ever used. Tradehill was started by some guy who got mad that MtGox was raking in the cash. He started throwing out accusations about security holes, the owner (of MtGox) not actually having all of the BitCoins backing his market, etc. Then he threw up Tradehill and it was shit.

All Bitcoin exchanges are shit. They're for speculators. Bitcoin as a currency is fine, and it will be fine if every exchange dies off.

Sure there will -- you can grow some marijuana and trade that for Bitcoins. Except that the only reason anyone does such a thing right now is because they want to trade the Bitcoins for their nation's currency.

Many of them. The US dollar is traded on all international currency markets and for a small scale, any bank will convert them. If it weren't, it wouldn't be very useful. If I pay someone in Europe in US dollars they are ok with that because they can convert them to Euros, which is what they need to do their business. If they couldn't, if US dollars were non-convertible, they'd be non-useful.

Also you have the problem that next to nobody accepts and deals in bitcoins directly. It isn't a functional currency. The US Dollar, the Euro, the Yen, these are all functional currencies because a lot of people will accept them as such. You can buy goods with them, pay taxes with them, etc. I cannot name a single thing I'd want to buy, a single place I shop at, that takes bitcoins. As such if they aren't convertible, they are worthless.

All Bitcoin exchanges are shit. They're for speculators. Bitcoin as a currency is fine, and it will be fine if every exchange dies off.

Without speculation, Bitcoin is worthless. The only reason anyone has ever accepted Bitcoin as payment for anything is because they believe they can redeem Bitcoin for some other currency later on -- something which there is never any guarantee of (compare to private currencies that are backed by national currencies). This is in stark contrast to national currencies like dollars, which people must have if they intend to pay their taxes (which they must do if they intend to legally own property, hold a j

How can I short this currency?
I believe MtGox was working on options trading for BitCoin and one would assume they might allowed short trading. If not, then just buy a Put option at the current price (that ought to be cheap right?) and then at some later date come in and cover your Put at the presumably lower price, or sell your Put, which is usually a better deal than exercising it.
However, I wouldn't recommend shorting it at this point. Once the dump story dujour moves on, it will probably move back to

The only reason anyone has ever accepted Bitcoin as payment for anything is because they believe they can redeem Bitcoin for some other currency later on

This is demonstrably false. There's a considerable demographic in the Bitcoin community who don't like that the speculators have eclipsed the commerce side, and who would very much prefer if they could trade it back and forth as an isolated currency rather than having everyone think of it as a proxy for dollars.

There's a considerable demographic in the Bitcoin community...who would very much prefer if they could trade it back and forth as an isolated currency

Unless they live outside the jurisdiction of any effective government, they will have to find at least enough of some nation's currency to pay their taxes (which in some nations includes taxes on transactions made using Bitcoin, which cannot themselves be paid using Bitcoin). I sincerely doubt that these users live under such circumstances, and even if they did, they would also have to find a way to generate electricity and connect to the Internet without incurring any costs other than Bitcoin, which is

OK, I'll grant that -- Bitcoin might live on as an obscure, niche currency with extremely limited utility. Not even the black market users will stick with it in that case, and perhaps people will realize that there are more effective digital cash systems out there that could be deployed in a way that benefits society (not just the black market).

On the other hand I think it will be exchangeable to dollars for the foreseeable future, regardless of what the island-currency niche wants. As long as there's another group that DOES want it exchangeable, they'll find a way.

Except that there will always been more demand for national currencies than there will be for Bitcoin, and so over the long term we should expect Bitcoin's value to decline. Trying to bet on it being exchangeable for dollars for any period of time is speculation, which gets back to my original point: Bitcoin's value is almost entirely due to speculation.

Wrong, people demand government issued currencies because they need it in order to pay taxes and other debts; failure to make such payments can result in the loss of one's property or freedom. There is a legal structure surrounding government issued money, which is where demand for that money comes from: courts determine property values and damages in terms of he government's currency, tax collectors will only accept payments in government currency, banks will only accept debt payments in government curre

A real exchange (e.g. like the CME) has the following important property: all participants have the exchange as an economic counterparty, not each other. That is you take on the credit risk of the exchange, which is presumably better than any individual participant.

This means that if X trades with Y on the CME, and X (as a broker) goes bankrupt before the money settles, the CME will pay Y, and then attempt to get money back from X. This actually matters sometime (cf MF Global). The exchange then has stand

On most of the Bitcoin exchanges, X and Y deposit their respective funds (say, USD for X and BTC for Y) into their account on the exchange. During a trade the exchange immediately transfers X's USD to Y's account and Y's BTC to X's account, less fees on both sides. IE, trades are settled instantly and withdraws may be performed immediately (though the usual banking delays exist on the fiat side, and received BTC take about an hour to confirm).

The loss of Tradehill and the security breaches of other exchanges disrupted the confidence in using Bitcoin, but the protocols remained intact. I see this as a testament to the design of the system, even though a fundamental quality for any currency is the confidence of its users.

As a Bitcoin lurker (I've never owned anything more than 2 BTC), I've been intensely fascinated in the potential of this "currency." Without belaboring the great qualities of a decentralized currency, it has attracted a speculative class of users that have rushed into centralized exchanges using nervous money transmission providers. The irony is not lost on me.

Tradehill's departure and what I believe will be an eventual international agreement hobbling Bitcoin's biggest exchange Mt. Gox in Japan (a la UBS in Switzerland), due to tax evasion, ought to serve as a cautionary note to Bitcoin users. Money transmission is a confiscatorially regulated practice. Bitcoin's best hope ought to be transactions as decentralized as the protocol it uses.

Lurkers such as I can only hope of an ecosystem or application so widespread, so diversified, secure enough, and easy to use before Bitcoin can be considered useful to most internet users. I dream of a decentralized Facebook knock-off (e.g. diaspora*, etc.) with a Bitcoin client built in, making currency transmission as simple as tossing a dollar to a friend to buy a cup of coffee. Perhaps even at a coffee shop with patrons casually swapping US$ and BTC as they play chess or read.

We go through this discussion every single time a Bitcoin article appears on Slashdot. Bitcoin is guaranteed to fail in the long run:

It is a digital cash system in which the tokens cannot be refreshed; this is known in crypto research community to imply that the tokens must grow linearly in the number of transactions. Bitcoin attempts to hide this fact in its architecture, but if Bitcoin is secure then the computation resources needed to continue using Bitcoin will grow over time. Worse, as more people use Bitcoin, the growth rate will accelerate because of the increased number of transactions. If Bitcoin was used at anything close to the number of dollar transactions that happen every day, the technical limitations of Bitcoin would kill it off within a week's time.

Useful digital cash systems involve a central issuing authority like a bank or government, that can accept old tokens and produce "fresh" tokens of equal value. Having such a central authority is not a bad thing:

The demand for Bitcoin will never exceed the demand for national currencies. Using the USA as an example, people who live in America must pay taxes -- taxes on income, taxes on property, sometimes taxes on purchases they make, and so forth. The government only accepts tax payments that are made in dollars, and yes, you have to pay taxes on transactions that do not involve dollars, such as barter or having a Bitcoin salary. Every year, hundreds of millions of Americans must pay their taxes, and if they were all using Bitcoin for everything, they would all simultaneously try to trade their Bitcoins for dollars to cover their tax debt. While this frequently happens with other currencies -- people paid in pounds sterling will try to make a similar trade -- all national currencies are demanded by some nation's citizens for a similar purpose, unlike Bitcoin, which nobody is legally obligated to use.

It is a good thing that nobody is obligated to use BItcoin to pay their debts, because:

Bitcoin is a deflationary currency -- there is a fixed maximum number of Bitcoins that can exist. If you had a long-term debt to repay in Bitcoins, it would be harder to make payments as time went on, because Bitcoins would become harder to find (assuming that the Bitcoin economy continues to grow, which I already noted is an unlikely event). You would be a fool to ever incur a Bitcoin debt for this very reason. Unfortunately for Bitcoin, credit is a necessary component of any economy; this has been a fact of life for so long that it not only predates paper currency, but paper itself.

Sure Bitcoin is deflationary, but the total stock of coins is irrelevant for measuring your ability to pay off a debt. The only thing that matters is your income flow. Provided the bitcoins you are using to pay your debt continue to circulate, you could keep receiving the same coins as income. It is absolutely possible to pay off large debts using a currency with a limited stock of tokens.

they have already begun by taking the mining out of the default client

This makes the scalability problem even worse, since it forces you to reuse older tokens, which have already grown because of their use in previous transactions. This is not a problem that you can just hack your way around, it is a fundamental limitation of digital cash systems. Note that on the very page you linked to, they attempt to sidestep this problem by claiming that hard drive sizes will grow to accommodate their needs, which I seriously doubt unless Bitcoin remains an obscure payment system.

The black market already holds its own to the deman for national currency and the black market is growing with time - it is very likely that within the next decade or two it may outpace the regulated one. With half the world's population already employed in the black market it is not much of a stretch to think that you don't need a government to back a currency, if the incentives are right for the market to protect it itself.

It is very much a stretch to think that money can exist without government backing. If the black market stopped using national currencies, they would be forced to switch to a currency backed by some other large, powerful organization to enforce payments, and that organization would be a de facto government. Money is only valuable within some enforcement structure, which is the role that a government plays; even when banks issue currency, they rely on governments to enforce debt payments.

And you could say by the same metric that trade in physical goods, whether coins or paper bills have been a 'necessary' component...until the digital banking started to take over in the 80's or so. Just because something has always been part of the economy does not mean that it is necessary. That is a correlation vs. causation error in thinking.

Except that we still trade in physical goods (and even if all currency were digital cash, you would still trade in physical goods -- you need food, clothing, etc.), and we have had paper transactions managed by banks for centuries (which have simply moved computers, which are more efficient record keeping systems).

At a basic level, credit is necessary in any economy because people with the skills needed to complete a task do not always have the resources needed for that task. A farmer might not have enough money to buy the fertilizer he needs for a particular growing season, a cook might not have the resources needed to start a restaurant, etc. At an even more fundamental level, you might need to work before you are able to pay the soldiers that protect you from a hostile enemy, but those soldiers need to be paid while they are busy protecting you; taxes themselves are a form of debt, and governments cannot function without tax revenue.

The unfortunate thing about Bitcoin is that people have come to associate Bitcoin with digital cash. There are plenty of other digital cash systems that have all of Bitcoin's advantages without the serious disadvantages; those systems use a bank or other token issuing authority to renew tokens that have long transaction chains (thus avoiding the scalability problem) and are easy to back with a national currency, or perhaps to use as a national currency. Anarchists may not like the idea of a bank having power over currency, but that is just how currencies work: some central authority must back the currency. I am personally a big fan of digital cash, since it would solve a lot of the security problems that we see with debit and credit cards, but because of the various crypto battles and patents in the 90s digital cash never did take off.

which have already grown because of their use in previous transactions

This isn't actually true. Coins don't keep getting split into smaller and smaller portions forever. Every time you spend it takes several old coins and combines them into (usually) two new ones: 1, the payment you make, and 2, your "change" (which goes back in your wallet). The previous inputs are permanently combined and no longer needed going forward. The current software does not yet actually implement it, but obsolete coins CAN be "pruned" entirely, facilitated by the Merkle tree.

The blockchain will still undergo a lot of growth if more people begin using Bitcoin (since the currency base will be divided between more wallets, and there will be greater numbers of recent transactions that are not yet pruned), but it doesn't geometrically expand forever. When Bitcoin stabilizes at a certain level of market saturation the blockchain will also stabilize in size.

Whether that will be a reasonable and manageable size is still an open question.

all of Bitcoin's advantages without the serious disadvantages; those systems use a bank or other token issuing authority

I want to know that the central bank won't just start issuing more currency and devalue mine.

I want to send money to Wikileaks, but all the banks are forbidding it.

I want to pay someone over the internet without Mastercard or Paypal or whoever taking a 2% cut.

There is no other currency that currently has ALL of those advantages of Bitcoin. Some of the advantages are inherently incompatible with centralized, bank-operated currencies. It also has a long and substantial list of disadvantages too - no argument there. But on the whole it simply has a different set of tradeoffs than any other currency, and so it (or one of it's descendants; I don't expect Bitcoin is going to be the last word in decentralized e-currency) will be relevant for some time.

The blockchain will still undergo a lot of growth if more people begin using Bitcoin (since the currency base will be divided between more wallets, and there will be greater numbers of recent transactions that are not yet pruned), but it doesn't geometrically expand forever. When Bitcoin stabilizes at a certain level of market saturation the blockchain will also stabilize in size.

Which implies that Bitcoin is not secure. Somewhere, the storage or bandwidth require must grow with the number of transactions that any token is used in in any secure digital cash system, regardless of how the token is manipulated. If that is not the case, then either the system does not provide anonymity, or it does not provide security against doubt spending (I suspect the former in the case of Bitcoin).

I want to know that the central bank won't just start issuing more currency and devalue mine.

That's nice, but if your money supply cannot grow then your economy is going to have problems.

The total log size grows, but the individual tokens shouldn't change in size. Is every client storing the entire transaction chain for all the coins you own? That's silly. This is why a transaction refers to the previous transactions it is consuming by the hash of the transactions, you can verify a signature without traversing the entire history. Sure a number of clients in the network will need to store the entire log file so new clients can re-validate it. But once everyone agrees that a token has been co

This is a technique that has also been discussed in the literature, called "receipts." That is still not scalable, since the amount of disc space required to run the system at all will continue to grow over time; worse, if the Bitcoin economy is growing, the rate at which disc space is consumed will accelerate. The receipts approach is generally only useful if you can delete the log -- for example, if the token is renewed by an issuing authority, which is not applicable in Bitcoin's case.

Tradehill was probably the best-run Bitcoin exchange. They didn't steal customer funds, like some of the other defunct Bitcoin services. [betabeat.com] They didn't go down much. They didn't have a monthly crisis [thebitcoinsun.com] like Mt. Gox. (formerly Magic, the Gathering Online Exchange. Really.) If Tradehill does in fact return all customer funds, at least they shut down honestly.

A basic problem with Bitcoin is that the ability to irrevocably transfer funds to anonymous parties is the scammer's dream. Bitcoin is thus a scammer magnet. Just about every known financial scam was replicated in the tiny Bitcoin world, from fake banks [globalstandardbank.com] to fake stock exchanges [glbse.com] to Ponzi schemes. [bitponzi.net]

That seems a little unfair. It'd be equally valid to say that a scammers dream is an electronic payments system that allows purchases to be made with only a fixed password, which must be given to anyone who accepts payments, which isn't connectable to any kind of second factor and in which the costs of fraud get sunk by the merchants (who can't do anything about it) rather than banks or end users, thus ensuring the party continues endlessly. How many credit card details can be bought on the black market aga

Because they're calling themselves a Ponzi scheme, they can't be a Ponzi scheme? In what world does this logic make sense? If you are taking money from new people and giving it to people who are already in the system, then that's a Ponzi scheme. The whole point is to be an early adopter so you make your money back and more from all of the new suckers. Sure there is a gambling element to it "Did I join early enough?", but if you define gambling that vaguely then virtually all financial instruments are ga

Weed? Give me a break, the biggest political attack on Bitcoin so far is because you *can* buy weed with it.

Buying most of these online might not work for you, but for what it's worth, one of my friends buys beer online with the coins he mines. Belgian Flavours shop accepts Bitcoin AFAIK. You can buy PCs and all kinds of electronics for sure. Not sure how competitive the prices are though, at the worst case you can buy vouchers for more popular sites. Smokes, yes, there are a multitude of shops for tobacco

Bitcoin is a perfectly good idea.. I use it regularly to exchange currencies, someone in one country buys bitcoins with his local currency and sends them to me, i then convert them to local currency. Doing this with bank transfers or paypal has massively higher fees for me.

Bitcoin is a decentralised computer currency designed by self-righteous Ayn Rand-reading nerds who despise looters and parasites like, er, you. It is used to purchase Internet services, illegal drugs and pictures of naked women holding video cards.

Bitcoin works by an emergent synergy of cryptography, peer-to-peer, anonymity, anarchism, libertarianism, wasting stupendous quantities of electricity, the marketing department at NVidia, the enduring exchange value of tulip bulbs and doing all of this instead of

Money is not fiction, it is a mechanism that governments and banks can use. Dollars not valuable simply because people believe they are valuable, they are valuable because the US government requires a large group of people to use dollars (i.e. to pay taxes and other debts). People believe dollars are valuable because all the tax-paying and otherwise indebted citizens around them demand dollars as payment, because they need those dollars if they do not want the government to take their property or freedom.

Even with the above reasoning, Bitcoin can still survive if there are enough situations where no currency is de jure standard and Bitcoin has a considerable advantage. Black market for sure, and gray market might be a good candidate for it.

In which case it would only take a digital currency system that does not suffer from Bitcoin's inherent scalability problem -- the fact that the computational resources needed for Bitcoin grow with the number of Bitcoin transactions, a fact that is inherent in all digital cash systems and that is typically resolved by means of a central issuing authority that can "renew" tokens -- to kill of Bitcoin. If the only advantage Bitcoin has is that it is a digital cash system, it is only a matter of time before

A design that is resilient to regulation is needed in order to have the advantage in the first place,

Actually, the biggest advantage of digital cash is that it prevents an untrustworthy merchant from raiding customer accounts (e.g. if a merchant is compromised, credit card data could be used to make unauthorized payments). Anonymity is a secondary goal, and even anonymous payments do not free the parties in the system from regulation -- there is plenty of regulation on cash transactions, which offer a similar level of anonymity.

at least some sort of decentralization is practically a requirement

Yes, that is true -- the payments should be decentralized in a digital cas

What you are really saying is "I don't believe in bitcoin". Other people do, however, to the tune of $40 million USD.

If you treat BitCoin as an experiment in electronic currency without a central bank, I would say it is worth it just to learn what works and does not work. Money has been getting ever more electronic over time, and we should have some idea how the fuck it works. Second Life is another experiment in electronic currency. It has a total money supply worth $27 million, convertibility back and

but it's better to experiment and make mistakes on one of those, than, say, Greece.

True that working small is a good way to test. But the Greece analogy isn't very good. That wasn't about the form/format of money or the exchange thereof. That was about spending than you can afford and don't have the will to produce... which is just as bad when you're on a barter system as when you're on a currency system. Entitlement mentality killed the Greek economy, not the ebb and flow around currency mechanisms.

Entitlement mentality killed the Greek economy, not the ebb and flow around currency mechanisms.

"Entitlement", as in "investors are entitled to have their gambling losses covered by taxpayer money"? Because that entitlement absolutely dwarfs any and all entitlements the common people in Greece received. And it's the same problem everywhere, including the US.

Are you referring to things like the GM bailout? Investors lost pretty much everything, the government got a big chunk of the company, and the labor unions were given the rest as a huge political reward for supporting the administration doing the giving. Yeah, that's quite corrupt. But the reason GM needed bailing out in the first place wasn't the investors, it was the unions.

Even if it wasn't a pump and dump scheme it was doomed to failure as a currency for one simple reason: Built in deflation.

The total number of bitcoins that can ever exist is finite, and as time goes on they get harder and harder to "mine". So as such, deflation is just built in to the currency, if it were ever adopted on a wide scale.

While this is something that plenty of Internet 'tards who have no understanding of economics think is great "The money I have will be worth more!" anyone who knows economics k

Actually, I used to really like bitcoin and never thought most of the arguments against it held much water, since they mostly ignore that all the fiction in bitcoin is the same fiction in other currency. All currency is fake, because its all an abstraction. Nothing wrong with that.

However, the more I learned about it and dove into it...the more convinced I came of this simple fact... a currency wants deflation because currency isn't intended to be a savings instrument. People hoard gold. People hoarded bitc

If Bitcoins were a national currency its population would be protesting... a 20% overnight drop would be business news if this currency had enough people caring it existed. These money-like substances always seem to fail resulting in no payout to those holding the bag. Nothing left to see here, move along.

Sure. But Bitcoin isn't a major reserve currency. It's current size is like a tiny stock, and volatility is expected at that scale.

Unlike the corporate micro-currencies (Beenz, Flooz, whatever), Bitcoin doesn't suddenly go under and not pay out. Bitcoin is volatile, but it's still liquid - if you want to trade back to dollars, you can do so at market rate on any of several dozen markets.

Bitcoin's not for you if you don't want to deal with volatility, but it has very different properties than any other cu

When it hasn't gotten any media attention for a while, and it suddenly gets some attention, the price goes up for a small time, and then it drops like a stone again.
Recently, I would have to say that the exact opposite is the case. It remains fairly constant until some inflammatory and misleading article such as this one comes out.